Economics Dictionary of ArgumentsHome
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| Velocity of circulation: The velocity of circulation in economics measures how frequently money changes hands within an economy over a given period. It reflects the rate at which money is used for transactions and is a key component of the equation of exchange. Higher velocity indicates more economic activity, while lower velocity suggests slower circulation. See also Equation of exchange, Irving Fisher._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Irving Fisher on Velocity of Circulation - Dictionary of Arguments
Rothbard III 840 Velocity of Circulation/Fisher/Rothbard: Equation of Exchange/RothbardVsFisher: It is evident that PT, in the total equation of exchange, is a completely fallacious concept. While the equation E = pQ for an individual transaction is at least a trivial truism, although not very enlightening, the equation E = PT for the whole society is a false one. Neither P nor T can be defined meaningfully, and this would be necessary for this equation to have any validity. We are left only with E = pQ + p'Q', etc., which gives us only the useless truism, E =E.(2) >Equation of Exchange/Fisher. Equation of exchange: MV = PT. M - Money supply V - Velocity of circulation P – Price level T (or Q) - Expenditures Cf. >Price level/Fisher. Velocity: Let us consider the other side of the equation, E = MV, the average quantity of money in circulation in the period, multiplied by the average velocity of circulation. V is an absurd concept. Even Fisher, in the case of the other magnitudes, recognized the necessity of building up the total from individual exchanges. He was not successful in building up T out of the individual Q's, P out of the individual p's, etc., but at least he attempted to do so. But in the case of V, what is the velocity of an individual transaction? Velocity is not an independently defined variable. Fisher, in fact, can derive V only as being equal in every instance and every period to E/M. If I spend in a certain hour $ 10 for a hat, and I had an average cash balance (or M) for that hour of $200, then, by definition, my V equals 1/20. I had an average quantity of money in my cash balance of $200, each dollar turned over on the average of 1 /20 of a time, and consequently I spent $ 10 in this period. RothbardVsFisher/RothbardVsVelocity of circulation: But it is absurd to dignify any quantity with a place in an equation unless it can be defined independently of the other terms in the equation. Fisher compounds the absurdity by setting up M and V as independent determinants of E, which permits him to go to his desired conclusion that if M doubles, and V and T remain constant, p - the price level - will also double. But since V is defined as equal to E/M, what we actually have is: M x (E/M) = PT or simply, E = PT, our original equation. Thus, Fisher's attempt to arrive at a quantity equation with the price level approximately proportionate to the quantity of money is proved vain by yet another route. >Price level/Fisher. Solution/Pigou/Robertson: A group of Cambridge economists - Pigou, Robertson, etc. - has attempted to rehabilitate the Fisher equation by eliminating V and substituting the idea that the total supply of money equals the total demand for money. RothbardVsPigou/RothbardVsRobertson: However, their equation is not a particular advance, since they keep the fallacious holistic concepts of P and T, and their k is merely the reciprocal of V, and suffers from the latter's deficiencies. Cf. >Neo-Fisher-Effect. Rothbard: In fact, since V is not an independently defined variable, M must be eliminated from the equation as well as V, and the Fisherine (and the Cambridge) equation cannot be used to demonstrate the "quantity theory of money." And since M and V must disappear, there are an infinite number of other "equations of exchange" that we could, with equal invalidity, uphold as "determinants of the price level." Thus, the aggregate stock of sugar in the economy may be termed s, and the ratio of E to the total stock of sugar may be called "average sugar turnover," or U. This new "equation of exchange" would be: SU = PT, and the stock of sugar would suddenly become a major determinant of the price level. Or we could substitute A = number of salesmen in the country, and x = total expenditures per salesman, or "salesmen turnover," to arrive at a new set of "determinants" in a new equation. And so on. >Quantity theory._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
F.M. Fisher I Franklin M. Fisher Disequilibrium Foundations of Equilibrium Economics (Econometric Society Monographs) Cambridge 1989 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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> Counter arguments against Fisher
> Counter arguments in relation to Velocity of Circulation
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